Morgan Stanley says M&A will rebound and these stocks have an 'elevated likelihood' of a takeover

Published Tue, Mar 5 202411:15 AM ESTUpdated Tue, Mar 5 20241:16 PM EST

Global merger and acquisition activity will soar this year, and several names could benefit from the comeback, according to Morgan Stanley. The firm expects global M & A volume activity to rise 50% this year compared to 2023. It also forecasts a multiyear secular recovery, data from a new survey of 150 industry teams across the bank shows. Health care, real estate, consumer staples and technology are the most favored sectors for M & A within private markets, according to the survey. "We believe that a cyclical and structural rebound in M & A is coming," Morgan Stanley said in a note titled "Stocks with Elevated Likelihood of Receiving an Offer," which was released Monday. "The structural case is driven by dry powder, private markets, regional shifts and new innovations … rising demand for AI capabilities, the clean energy transition, innovation in life sciences, reshoring and geographic diversification in a multipolar world should structurally support M & A over the next cycle." A comeback this year would mark a sharp reversal from record-low global M & A volumes in 2023, which were partly caused by higher interest rates that drove up funding costs and led to declines in global equity markets. Morgan Stanley pointed out that 2021 to 2023 could have seen a drop of activity worth between $4 trillion and $11 trillion. The firm expects a reversion to normalized activity levels by 2026, with Europe leading the recovery. Necessity and opportunity should drive more M & A activity in nonlisted private companies, the firm said, noting that more than 1,200 unicorns are currently valued at $4 billion or more. "Global listed non-financials hold US$5.6 trillion in cash while private market investors sit on US$2.5 trillion of dry powder, providing fuel for activity," the note said. The firm used quantitative models to screen for the stocks that have an elevated chance of receiving a deal offer in the next year. Take a look at some of the U.S. names below: Stocks that are smaller in size, have a lower price-to-book ratio, higher quality and within sectors that have seen a higher number of offers are the names more likely to receive a tender offer. Morgan Stanley said it has no information about M & A activity involving the companies. The firm's screen is just theoretical. Several health-care names were named, including Sarepta Therapeutics and Tenet Healthcare . Analysts are generally fond of Sarepta, a biotech that focuses on treatments for Duchenne muscular dystrophy. The stock has a consensus buy rating and $164.42 target price, per FactSet, suggesting shares could gain 32.6% since Monday's close. BMO Capital Markets initiated coverage of Sarepta at an outperform rating on Jan. 31, and said the company could have a strong year as its latest drug, Elevidys, continues to see strong patient demand. TripAdvisor is another name that could receive an M & A offer within the next year, according to Morgan Stanley's screen. Analysts surveyed by FactSet have a $27.19 target price on the online travel company, which suggests just 2.7% upside for shares. So far this year, the stock has climbed more than 23%. On Feb. 16, UBS analyst Stephen Ju had upped his price target on the stock by $6 to $27 and maintained his neutral rating, viewing TripAdvisor's fourth-quarter earnings and revenue beat as a favorable sign of future growth and profitability. Fast-food chain Wingstop was also a potential beneficiary of M & A trends. Several firms increased their price targets on Wingstop after the company surpassed revenue and earnings expectations for the fourth quarter. It also reported record-breaking new guest acquisitions. But the stock's more-than 39% run so far this year suggests shares could decline roughly 11% from its latest close price of $366.51, according to consensus FactSet estimates. Other companies included in Morgan Stanley's screener include Victoria's Secret , Hertz Global Holdings and Viatris .